5% Owner for MRD purposes

[DTH]

The final 403(b) regulations provide that for contracts that are not part of a governmental or church plan, the required beginning date for a more than 5% owner is 4/1 of the year following the year the participant attains age 70-1/2. When would there be a more than 5% owner in a 403(b) plan?

[masteff]

Possibly in the case of a non-profit hospital that was bought out by a for-profit entity (such as a doctors' group where the owners were participants in the plan)?

[DTH]

I'm still try to figure out how there can be a more than 5% owner in a 403(b) plan.

If ABC (a not for profit) is bought by XYZ (a for profit) ... can the 403(b) continue?

I assume that XYZ can keep ABC as a not for profit entity (and the 403(b) can continue), but can the EEs of XYZ participate in ABC's 403(b) plan. If yes, I can see where the owners of XYZ could be a more than 5% owner in the ABC 403(b) plan.

If I'm way off base, please provide me a better example. Thanks!

[masteff]

My thought was the 403(b) would be frozen for new contributions but wouldn't necessarily be terminated. Very common in mergers and acquisitions to end up w/ frozen plans that will eventually payout benefits even though no new benefits are accruing. So the plan would have frozen vested participants from ABC but no new ones from XYZ.

And just looking at the rules applying to ministers, it looks like there's a potential there for someone to be a more than 5% owner.

[Guest mjb]

Since a profit making entity cannot sponsor a 403(b) plan how can a person own a 5% interest in a 501©(3) non profit entity. I dont think a 5% ownership of a profit making sucessor to the NP makes a person a 5% owner for the MRD rules for commencing distributions in a 403(b) plan sponsored by the non profit. The only possibility I can think of is an employee who has beneficial ownership of the stock in a NP which he is required to vote in the interest of the beneficaries under the terms of the trust that controls the NP.

[masteff]

I dont think a 5% ownership of a profit making sucessor to the NP makes a person a 5% owner for the MRD rules for commencing distributions in a 403(b) plan sponsored by the non profit.

Can you provide a cite to support why ownership of a sucessor company wouldn't count as ownership for MRD rules? Neither the 403(b) regs nor the 401(a)(9) regs qualify 5% ownership. If a company is the plan sponsor and someone has 5% or more ownership of that company, then how is it not ownership for the MRD rules?

[Guest mjb]

I dont see how a profit making employer which is not an eligible employer who can establish a 403(b) annuity plan under reg. 1.403(b)-2(a) can maintain a 403(b) plan.